Spending your retirement abroad

Thanks for the interest Global Teacher :slight_smile:
Things have indeed improved a bit under Macron: However keep in mind that France is known for having very unstable fiscal laws, as every new president wants to leave his mark in the fiscal landscape.

  • no more wealth tax (ISF), replaced by another tax if the value of your real estate is more than 800’000 EUR. Most of us would not be impacted here.
  • Revenues from the stock market (i.e dividends AND capital gains) are taxed at a single flat rate of 30%.
  • “Taxe d’habitation” (“living tax”, not to be confused with “taxe fonciere”= property tax) is likely to disappear by 2021. However this is not clear yet if it is going to be totally removed, or if only the 20% wealthiest of taxpayers will have to pay it (which would be outrageous and yet another way of dividing people).

So let’s do a quick example, let’s say you have amassed 1’500’000 CHF = 1’300’000 EUR (roughly) and buy a house for 300’000 EUR.
You invest your remaining 1’000’000 EUR in the stock market and get 4% annually, that makes 40’000 EUR revenues.

  • you will have to pay 12’000 EUR of tax on your gains in the stock exchange
  • your property tax will likely be around 1’500 EUR per year
  • you will need health insurance. The laws are evolving and i am not sure if you can still have a private insurance. In this case you will have to contribute to the CMU (= “Couverture medicale universelle” = Univerval medical coverage), which costs 8% of the difference between your revenues and a threshold of 9’600 EUR). Here it will cost you 8% *(40’000-9’600)= 2’432 EUR.

You would be left with 24’068 EUR per year after taxes, health and housing is taken care of.

In a more conservative case where you use a 3% Safe Withdrawal Rate, you would have revenues of 30’000 EUR, from which you would need to deduct:

  • 9’000 EUR of income tax
  • 1’500 EUR of Taxe fonciere
  • 8%*(30’000-9’600) = 1632 EUR for CMU
    And you would have 17’868 EUR left per year. (that makes 1’489 EUR per month).
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Merci beaucoup Julianek!

It seems that for tax purpose, the real estate also includes SCPIs or REITS, so this can bring a “dividend-chasing investor” to 800,000 quite easily, if one is not careful…

On the other hand, there seems to be a “décote” between 800,000 and 1,300,000 euro of real estate, which might reduce or cancel the IFI tax until 1,300,000, although I am not clear if this applies to everybody at that level. (…not that we are at that level yet, but hoping and anticipating!)

But as you said, the situation might change again, with the pressure of the gilets jaunes on Macron to bring back the previous wealth tax on all assets…

@Julianek Great summary for France, very interesting!

Have you considered the “assurance vie” investment structure? This seems like a tax advantaged way to FIRE in France by putting assets into a Pillar 3a like structure. Then each year the withdrawal from the stash would be partly tax-free return of principal, partly tax-exempt gains (up to a threshold), and partly tax-advantaged gains (reduced taxes over time.) I suspect that the overall tax burden would be much lower with this structure?

Link: https://www.spectrum-ifa.com/financial-advisor-france/assurance-vie-in-english/

At some point I did the computation, I don’t think the reduced tax was a win vs. the higher fees.

(might have changed since, but didn’t seem like there was a sudden boom of low fee passive funds :slight_smile:)

Checking my notes, at the time it seemed worth it if you expect > 9% yearly return.

@Julianek How would your analysis of taxes in France change if the retirement funds were already liquidated into a taxable account? How would it look if you had already paid the taxes on your 1M CHF portfolio? (Suppose you took a detour via Dubai and liquidated all of your pension accounts.)

I suppose that you would still have to pay the wealth tax, and you would still have to pay for social security or an equivalent, but a substantial portion of your annual spending would be from savings rather than from taxes. That is, the effective tax rate on the money you draw from your portfolio would be less, because a substantial portion of that is principal rather than capital gains or dividends.

Your excellent summary reminded me that we shouldn’t call Monaco, Liechtenstein and Hong Kong tax heavens - they’re tax normality. It’s the all other countries that should be called tax hell or tax slavery.

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Monaco is a Tax Heaven, Liechtenstein is just smart. Hong Kong might be called “tax normality”, but I’m not entirely sure how it works.

Monaco has loads of money that they don’t need to have taxes. Not normal.
Liechtenstein is smart: They just ask CH for services and pays a fair price for them I suppose. That’s what other countries can’t do. Have Fair prices for stuff, so you have for example Italy that has an hairdresser at the parliament that get paid like 100.000EUR annually because no one asked them to give fair wages to him. etc etc.

This reminds me of one of my pointless internet arguments about politics. I was complaining about the current Polish government handing out free money, and that it was only gonna end in higher taxes. To which the other person said that in fact in Poland we have one of the lowest taxes in Europe. Yeah, well, that’s not a great example to follow. The current generation of Europeans is feeding on the legacy of their ancestors.

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“Home health insurance trick” works - I have a friend who’s looking to have knees and hip joints replaced several times until end of life. For the first surgery after moving abroad the person travelled here, took residency with a friend and had the procedure done. To avoid being blacklisted (not sure how the insurance company would make their life difficult) he or she took up permanent redidency at the parents’ address before moving back abroad.

Well, that’s not exactly the same. Your friend is commiting some sort of fraud, what I said is that a company refuses to help you and moves you back to your home country, where you can get cured. It’s legal and the only shady person here is the insurance abroad that refuses to help you.

My “trick” should actually be called “insurance of being swiss”.

Anyway your friend will have other troubles with the tax authority.

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Love this thread!

My plan with surely many wholes: Buy a house (checked) and when you FIRE, rent it partly to the kids (or other people you know) and stay resident in CH. Travel and enjoy life in other countries according to your budget but come regularly back to CH during summer time. It is overall one of the most beautiful countries of the world IMO. Once you live outside, you automatically will appreciated it more.

And yes Portugal, France, Mauritius, Poland, Greece and many more - put them on your bucket list …

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You can choose to be taxed using the income tax rates instead (link, progressive rates). In addition, you have to pay for social contributions (17.2%). In the case of 30000 Eur taxable revenues, you would “only” pay around 8200 in income taxes. Note that the taxable revenue isn’t the full revenue since France has complex tax system allowing many deductions. So it’s not as bad as it seems…

You can also completely avoid paying taxes (but not social contributions) if you have subscribed to a PEA and start withdrawing after 8 years. Securities eligible to the PEA have to be based in Europe but there are some tricks to get MSCI World ETF in there…

Last thing: if you choose the 30% flat tax, it only applies to the dividends and the capital gains. Suppose that you get 2% dividends on your 1 million portfolio (20k). That gets taxed at 30% (6k). The rest (10k) has to come from selling securities. If you had 10% gains since buying, you’re only paying 30% taxes on the 10% gains of the 10k (0.3 * 0.1 * 10k = 300). So in total, you end up paying 6300 Eur in taxes.

If a swiss person was to move to France for retirement, I can imagine that the value used for calculating capital gains would be the value at the day the change of residency happened. So if you move on January 1st and your portfolio is worth 1 million, I think that 1 million counts as the “buy value”. If that’s not how it’s calculated, one can always sell his portfolio while in Switzerland, pay no taxes on the capital gains, and then move to France with a large cash bank account, and then invest the first day, losing effectively just a few days in the market but saving a boatload of taxes.

That’s what I’m planning to do when I’ll move to Poland in couple of years. Even thinking about all this process makes me scared. Then there’s also the matter of withdrawing 3rd pillar, and - if it’s possible - 2nd pillar.

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I only glanced over this thread, so apologies if this was already discussed. One (to myself somewhat important) question I would add to the initial catalogue of criteria: if you have children, where do you want them to grow up?

The dimensions of this question are of course diverse and fuzzy, e.g. political (current power(s) in charge, your own political identity, social justice in that country, how much that matters to you, how it is applicable to your own personal situation, and society as a whole, etc).

The question perhaps has somewhat resemblance of optimizing for your calculated / best assumed return of investment (for your lifespan) versus assumed best opportunities including your offspring.

Bonus points if you can answer this question if your children might have a career path ahead of you with fewer fortunes than you might have experienced, and destiny over that path is increasingly out of your control (e.g. your children approach a certain age or development point).

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This is a major point and underestimated by so many.
The classic story of expats (or immigrants how they are called in lower-paid jobs) is that their dreams get crushed by the reality of their kids.
Switzerland (and other wealthy countries, too, of course) has a long history of foreign workers going back to the 19th century - Italians, Spanish, Portuguese, Germans, Countries from the Balkans etc. The classic story amongst them: the dream of retiring to their home country where their money would be so much more worth. But then, after 20-30 years working in Switzerland, they have to realise that their children were born here and have their friends here. So in the end it comes down to the decision: early retirement or the future of the children.

I met a friend lately and she told me that she is indefinitely grateful that her mother did not go back to Spain and let her grew up and go to school in Germany. She sees her cousins and friends in Spain suffering from unemployment.

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So let me be the devil’s advocate here. My father was in the military, so we moved quite a lot while I was a kid.
It never bothered me longer than a few weeks after the move and I haven’t got any issue to restart a social life every time. So yes, kids adapt much more than we think. And anyway, as soon as they go to the university or start working chances are great that they will be far from their parents anyway. So they might as well switch country if they want.

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I would never leave Switzerland with kids. That would be very egoistic. You are robbing their future.

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That’s quite exaggerated, isn’t it? Which part of their future would I be robbing?

  • Material world: As long as they are under my responsibility, anything that I would need to provide them in Switzerland would be cheaper abroad
  • Career: They are still EU citizen. If they want to work later in Switzerland or even settle in Switzerland nothing prevent them to do so.
  • social life: unless they live all their life in the same village, they will renew their friends anyway every 3-4 years when they switch from primary school to middle school to high school to university…
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I agree with Julianek here. Nobody is robbing anyone. It’s parents decision where to live and kids can make their mind once they’re grownups.

One thing that I’m skeptical of is adaptability of kids. I think not all children adapt as easily and quickly, and for some moving to another country could be a huge source of stress.

I’m myself torn about this as my son is almost 2.5 year old and I’ll have to make a decision in couple of years - whether to stay or move back to Poland. I’d prefer not to move when my son will be a teenager. So I’d rather move before he’s 10 or after he 20.

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So you think he doesn’t have better chances in Switzerland than in Poland for a successful life and high earnings?